When buyers should not walk on by a sweet deal

With apologizes to Jackie DeShannon, Burt Bacharach and Hal David, what the world needs now is not love, sweet love. It needs buyers, sweet buyers. At least the housing world does.

There are plenty of homes for sale, a record number nationally and perhaps an all-time high in your neighborhood.

In many places, moreover, prices are falling, with motivated sellers, particularly builders, throwing in free options and upgrades, help with closing costs and other goodies.

Mortgage money is still relatively inexpensive. And fairly easy to come by if you have a good credit record and cash for a decent down payment.

But apart from those folks who must move for one reason or another, there just aren't many buyers.

Even the tire-kickers are staying away.

The reason, of course, is that people are afraid to pull the trigger when house prices are dropping. Who wants to pay $250,000 for a house today when it might be worth, say, $240,000 next week? Or $230,000 the week after that?

No one, and that's why most would-be buyers have taken themselves out of the game until prices hit bottom.

That could be a mistake for those who plan to stay in their new homes for a while.

The common wisdom is that if the deal of a lifetime or the house of your dreams comes along, go for it. After all, it may not be available in six months.

As long as you remain in the house, you'll benefit from rising prices down the road.

"In all likelihood, you'll make money in the long run," says Bernie Markstein, a senior economist with the National Association of Home Builders. "So your best deal could be right now."

That scenario notwithstanding, for most people, today's situation begs the question: How do you know when prices have bottomed out?

"If it was so easy to find the bottom," Markstein says, "we'd all be millionaires."

But there are telltale signs that smart buyers can look for, evidence that the housing market has firmed and is about to rebound. A savvy, experienced real estate agent should be able to help you find them.

Every economist has his favorite indicators. For Lawrence Yun, senior economist at the National Association of Realtors, it's jobs and rents.

For Markstein, a key indicator is the incentives builders are throwing at potential buyers. Once the giveaways start to dry up, he says, it's a sure sign the market is beginning to turn.

Robert Campbell, publisher of the Campbell Real Estate Timing Letter, has five sure-fire indicators on his list. He says the signals hold for the San Diego real-estate market, where he is based and has tested his theories for 24 years. They have been equally accurate in all of Southern California and much of the rest of the state, he says, and "should work" just about anywhere.

Here are Campbell's five "vital" housing market signs:

*Existing-home sales.

This is perhaps Campbell's "most predictive" indicator. But it takes some legwork, because the number of homes sold in a given month is just a number. What you really want is a moving average, from month to month, for your area, county, ZIP code and even street.

"You need to slow everything down by creating a 12-month moving average. This takes the seasonality out of the equation," he explains.

You can create a moving average by adding up the last 12 months' sales -- not nationally or regionally, but locally -- and dividing by 12. Do the same thing month by month and you'll get an accurate reading of whether sales are slowing or increasing.

When the pace begins to quicken, it means sellers are likely to start holding firm on their asking prices -- or won't be willing to budge as much.

*Building permits.

This is "an excellent leading indicator," says Campbell, who claims to have housing in his blood, if only because his parents were developers and he was born in a trailer on a job site.

"No one reads a local market more accurately than builders," he explains.

*Mortgage defaults.

This is public information that can be gathered from your local recorder's office.

If defaults are rising, it means lenders are still being loaded up with real-estate owned (REO) properties -- the real-estate term for foreclosures -- which compete with other sellers. And when there's too much supply, prices tend to fall.

*Foreclosure sales.

This is the actual number of foreclosures; that is, the number of filings less the number of owners who have been able to bring their loans current. Campbell calls it "a confirming number."

*Mortgage rates.

This last indicator isn't so much a predictor as it is an "accelerator," said Campbell. This signal doesn't hold up very well right now because of the mortgage-market meltdown. But rising rates usually serve as a brake on the housing market, while falling rates act as a propellant.

The housing market will turn around.

The trick is to know when it does before everyone else. Footnote: Jackie DeShannon was the first to record "What the World Needs Now," in 1965. Dionne Warwick's more popular version didn't hit the record stores until December 1966. Burt Bacharach and Hal David wrote the music and lyrics.